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Category Archives: FLSA

In his recently published proposed biennial budget for fiscal years 2018 and 2019, Governor Walker has proposed to eliminate the Wisconsin Labor and Industry Review Commission (LIRC). LIRC is an independent three member commission appointed by the Governor that currently handles all appeals of Administrative Law Judge (ALJ) decisions for unemployment compensation cases, worker compensation claims, as well as state fair labor standards cases and fair employment cases in the Equal Rights Division and public accommodation cases. LIRC would be phased out over the next three fiscal years.

Presently, LIRC has the authority to affirm, overturn and remand ALJ decision in these areas. LIRC decisions are appealable to the State’s circuit courts.

Under Governor Walker’s proposal, Worker Compensation ALJ decisions will be reviewable by the State Department of Administration, while jobless claims and Equal Right Division decisions will be Agency administrators. In his budget statement, Governor Walker stated that the proposed elimination of LIRC will eliminate “an unnecessary layer of government” and will make this second layer of review decisions occur much more quickly.

Of course, this is a proposed budget and, as such, is subject to negotiation with the legislature and subsequent amendment. Further, stakeholders in the business, labor and legal community have yet to weigh-in on the Governor’s proposal. As this issue advances, we will keep you up to date and informed.

The U.S. Department of Labor issued its much-anticipated final overtime exemption rule on May 18, 2016, raising the minimum salary threshold required to qualify for the Fair Labor Standards Act’s (FLSA) “white collar” exemptions to $47,476 per year ($913 weekly). The new salary test will apply to all administrative, professional, executive, outside sales and computer employees who are treated as exempt and salaried under the FLSA. This new rule will affect approximately 4.2 million U.S. workers who are currently treated as exempt, but who would not satisfy the new salary test under the FLSA.

The rule has been a long time coming. The first version of the new rule was proposed in June 2015 and drew approximately 300,000 public comments between June and September 2015. That first version of the rule would have more than doubled the salary threshold from $23,660 per year ($455 weekly) to $50,440 per year ($970 weekly). The final rule just issued still doubles the salary threshold, but reduced the proposed salary threshold by approximately $3,000. The rule will take effect on December 1, 2016.

Under previous regulations, employees had to meet certain tests related to job duties and be paid at least $23,660 per year ($455 weekly) on a salary basis to be exempt from the minimum wage and overtime requirements under the FLSA. While DOL’s final rule raises the salary level significantly, non-discretionary bonuses and incentive payments can now count for up to 10 percent of the new salary level, provided the payments are made at least quarterly. This change has been viewed by some commentators as DOL “throwing employers a bone” in the final rule. In addition, this new salary threshold will be automatically updated every three years to ensure it stays at the 40th percentile benchmark, according to the Obama administration. The final rule also raises the overtime eligibility threshold for “highly compensated” workers from $100,000 annually to $134,004 annually.

Employers have a range of options in responding to the updated standard salary level. For all employees who are currently treated as exempt under the FLSA’s “white collar” exemptions, but who are paid less than $47,476 per year ($913 weekly), the following options exist:

Increase the salary of the employee to at least the new salary level to maintain his or her exempt status;

Convert the salary to an hourly rate and pay the overtime premium (one and one-half times the employee’s regular rate of pay) for all hours worked in excess of 40 hours in a week;

Control, reduce or eliminate overtime hours;

Reduce the amount of pay allocated to base salary (provided that the employee still earns at least the applicable hourly minimum wage) in order to account for overtime hours worked in excess of 40 hours (paying employee time and one-half for all overtime hours), to hold total weekly pay constant; or

Use some combination of these responses.

In determining which course of action to utilize, employers should analyze their workforce and determine which solution best suits their particular needs. For salaried, exempt employees who regularly work overtime and currently earn slightly below the new standard salary level, employers may be best suited to raise the employees’ salaries to the new salary level to retain the “white collar” exemption. For employees who rarely or almost never work overtime hours, employers may be best suited to start treating those employees as non-exempt, pay the employees a standard hourly rate, and pay the overtime premium when necessary.

If you have questions about this material, please contact Oyvind Wistrom by email at owistrom@lindner-marsack.com or by phone at (414) 273-3910, or any other attorney you have been working with here at Lindner & Marsack, S.C.

Employers continue to question when the Department of Labor (“DOL”) will finalize the changes to the Fair Labor Standard Act’s overtime regulations. Because the comment period ended on September 4, 2015, it was previously expected that the DOL would issue a final rule in early 2016.

However, last month at a Labor and Employment Law Conference, the Solicitor of Labor, M. Patricia Smith, stated that the DOL likely will not issue its final rule until late 2016. This is because the DOL must sift through approximately 270,000 comments that it received during the proposed rule’s commentary period (three times the amount of comments received in 2004 when the overtime rules were last updated).

Because the estimated timing of the final rule may coincide with the 2016 election, political commentators have suggested that the election may have an effect on the rulemaking process. For instance, if the proposed rule is implemented just prior to the election, it may be used as a campaign platform. Because of the uncertainties of an election, the current administration may impose a very short window of time for the rule to take effect (30-60 days) to ensure the rule is not reversed by the next administration. If the rule is not finalized or effective prior to a new administration, it is possible that the rule could be delayed or substantially changed.

Irrespective of the possible effects the election may have on the final rule, employers should plan and develop a strategy in the event the proposed rule will takes effect in Q3 or 4 of 2016. In their 2016 planning strategies and budget considerations, employers should analyze which employees will and will not be affected by the proposed changes, and should determine the appropriate steps to ready compliance should the rule take effect. Employers may choose to increase employee salaries to meet the new salary level threshold (estimated to be $970/week) or may reclassify employees from exempt to non-exempt. If the employer chooses to reclassify its employees from exempt to non-exempt, it will also need to consider the impact of overtime pay, the impact on employee morale, options to avoid overtime pay (such as hire additional staff), and implementation and communication of time-keeping policies.

The U.S. Department of Labor (“DOL”) has issued new guidance reiterating its focus on misclassification of employees as independent contractors and warning employers that “most workers are employees.”

The DOL has asserted that the purpose of its guidance is to provide clear direction to employers regarding the classification of workers as independent contractors. It asserts that employers should apply the multi-factorial “economic realities,” test, which focuses on whether the worker is truly in business for him or herself. Under this test, employers should consider and weigh the following factors: (1) the extent to which the work performed is an integral part of the employer’s business; (2) the worker’s opportunity for profit or loss depending on his/her managerial skill; (3) the extent of the relative investments of the employer and the worker; (4) whether the work performed requires special skills and initiative; (5) the permanency of the relationship; and (6) the degree of control exercised or retained by the employer. The DOL asserts that all of the factors should be considered and weighed together in each case, and that no one factor, such as the control factor, is determinative.

While the guidance does not announce a new standard to be applied in analyzing whether a worker is an employee or independent contractor, it asserts that the application of the economic realities test should be guided by the Fair Labor Standard Act’s definition of the term “employ.” The FLSA provides an expansive scope of the employee-employer relationship by broadly defining the term “employ,” to mean “to suffer or permit to work.” Applying the economic realities test to the broad scope of the employee-employer relationship, the DOL concludes that most workers should be classified as employees under the FLSA.

In light of this guidance, employers should carefully examine their classification of workers to prepare themselves for DOL audits and protect themselves from costly misclassification litigation and liability. Indeed, if it is found that an employer misclassified employees as independent contractors, the financial consequences could include the following: liability for employment withholding taxes, failure to pay tax penalties, minimum wage, overtime compensation, unemployment insurance, workers’ compensation, and ACA penalties for failing to provide minimum essential health-care coverage.

As directed by President Obama in March 2014, the Department of Labor (DOL) has issued a proposed rule regarding the Fair Labor Standard Act’s overtime regulations.

The rule focuses primarily on updating salary and compensation levels. It proposes increasing the standard salary threshold level for exempt employees from $455 a week to approximately $970 a week. This increase would set the standard salary level at the 40th percentile of weekly earnings for full-time salaried workers (nationwide) in 2016. While the standard salary level was set at the 20th percentile of weekly earnings for full-time salaried workers in 2004, the DOL states that an increase is necessary to fully account for the simplified duties test that was created in the DOL’s 2004 changes.

The rule also proposes salary increases to the “highly compensated employee” exemption. Currently, the regulations provide an exemption for employees if they earn at least $100,000 in total annual compensation and customarily and regularly perform any one or more of the exempt duties or responsibilities of an executive, administrative or professional employee. The DOL is proposing increasing this figure to $122,148, which would set the salary standard at the 90th percentile of all full-time salaried workers.

Furthermore, the DOL has proposed a mechanism for annually updating the salary and compensation levels going forward. It is considering and is seeking commentary on two possible methodologies: (1) annually updating the thresholds based on a fixed percentile of earnings for full-time salaried workers, or (2) annually updating the thresholds based on changes in the Consumer Price Index for all Urban Consumers (CPI-U).

Despite these drastic changes, the DOL has included a silver lining for employers. The DOL has proposed allowing non-discretionary bonuses and incentive payments, such as bonuses tied to productivity and profitability, to count toward 10% of the standard weekly salary level of $970, for the executive, administrative, and professional exemptions. In order to include the bonuses within the salary, the bonuses would have to be non-discretionary and employees would need to receive the bonuses more frequently than annually (i.e., monthly or quarterly, rather than a yearly “catch-up” payment).

While the DOL is not proposing any specific changes to the standard duties tests, it is seeking commentary to determine whether, in light of the salary level proposal, changes to the duties tests are necessary.

Upon publication of the proposed rule, the public is encouraged to provide commentary through the online portal at www.regulations.gov under Rule Identification Number 1235-AA11. After considering the comments, the DOL will make revisions to its rule and will issue a Final Rule sometime thereafter.

The filing of several recent lawsuits has focused increased attention on the advisability and legality of using unpaid interns under the Fair Labor Standards Act (“FLSA”). With the tight labor market, students and recent graduates have become increasingly eager to accept unpaid positions or internships just to get their foot in the door or to gain some much needed experience for their resumes. Employers are also looking at ways to boost productivity without additional expense. The legal risks are slight when employers offer an unpaid internship through a program in partnership with an institution of higher learning. However, when employers seek to use unpaid interns in lieu of a paid employee, or when the employer derives a direct economic benefit from the use of the unpaid intern, the arrangement may violate the FLSA.

The FLSA defines the term “employ” very broadly as including to “suffer or permit to work.” Anyone “suffered or permitted” to work generally must be compensated under the FLSA for the services they perform for an employer. This means that employees typically are entitled to be paid at least the minimum wage and overtime compensation for hours worked in excess of forty hours in a workweek.

A narrow exception has been carved out for training programs and internships which allows an individual to participate in a for-profit private sector internship or training program without compensation. The U.S. Department of Labor has identified six criteria for internships eligible for this exception:

The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;

The internship experience is for the benefit of the intern;

The intern does not displace regular employees, but works under the close supervision of existing staff;

The employer derives no immediate advantage from the activities of the intern and, on occasion, its operations may actually be impeded;

The intern is not necessarily entitled to a job at the conclusion of the internship; and

The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

While no single factor is determinative, courts will look at the totality of the circumstances to determine whether an internship qualifies for this exception and whether the internship is truly for the benefit of the intern.

Several recent lawsuits highlight the potentially problematic nature of using unpaid interns. In Wang v. the Hearst Company, the company sought to utilize unpaid interns to perform tasks at its multiple magazines, including coordinating picks-ups and deliveries; maintaining records relating to the magazine’s sample trunks and fashion closet; providing on-site assistance during photo shoots; and managing corporate expense reports and processing reimbursement requests. A class of former interns now claims that they were entitled to compensation for their work.

A similar lawsuit was filed last year. In Glatt v. Fox Searchlight Pictures, Inc., two former interns who worked on the film Black Swan also sued claiming they were misclassified under the FLSA. They claim that they should have been paid for their time working on the set performing tasks that they characterize as “secretarial and janitorial” in nature and included making coffee, taking lunch orders, taking out the trash and cleaning up the offices. This case is in the discovery phase and a final decision has not yet been issued.

In each of these cases, the employer’s liability could be significant. A violation of the FLSA exposes a company to back pay liability, as well as liquidated damages in an amount equal to the back pay award, attorney fees and costs. Formal internship programs through educational institutions, where the student receives credit for the internship, are relatively safe and permissible under the FLSA. However, employers using unpaid internships to perform meaningful work that would otherwise be performed by regular employees must evaluate their program in light of the six-factor test developed by the Department of Labor. For additional information, or if you wish to discuss your particular situation, please contact Oyvind Wistrom at Lindner & Marsack, S.C. by email owistrom@lindner-marsack.com or by telephone at (414) 273-3910.

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